Small business owners, especially when they are just starting out, often wonder about how they should navigate the payroll process. Should they hire a service or handle this important matter themselves. At this point it is important to weigh the options and determine which one is best.
Getting Started Processing Payroll
Every time a new employee is hired you must ensure that both you and they fill out the appropriate paperwork. This paperwork is used in a number of ways, and one of those is to help make sure that the employee receives proper pay and that taxes are correctly withheld.
Processing
Regardless how often your employees get paid, whether that is every week, every two weeks, or once every month, payroll still has to be processed. A check or direct deposit must be prepared for each employee.
The first thing that must be completed is a calculation of each employee's gross pay. Then, a schedule is used to determine the amount of withholdings. Withholdings from employee wages include state and federal taxes, Social Security, Medicare and any other deductions that have been agreed to by the employee.
Following Paychecks Preparations
Once paycheck calculations have been completed and the actual paycheck has been prepared, you are then required to send the government its portion of the pay. Yes, you must add up the entirety of your employee's withholdings and your matching portion and set that amount aside so that you can pay it later as part of your payroll tax deposits.
Payroll Process Responsibility
It is your responsibility to make payroll tax deposits once or twice a month. These payments are sent to the IRS in the amounts that have been withheld from each employee's paycheck. These payments are for federal and state income taxes, Medicare and Social Security as well as the amount you owe the government for Medicare and Social Security.
If you are handling the payroll process yourself, then you can use the electronic filing system on the IRS website. Otherwise, use Form 8109 for this purpose.
Additional Deposits
There is another deposit you will be expected to make as an employer. You must also make payments for unemployment insurance. Also, even if you have already paid what is due to the IRS, you still may be required to make payroll tax deposits that go to your state.
Reporting Payroll Taxes
Along with making regular payroll tax deposits, business owners must also sent in regular payroll tax reports. Here are the reports you will be expected to send to the IRS.
• Quarterly, you will need to fill out Form 941 including how much payroll tax liability you have accrued and the amount that has already been paid on this liability during previous quarters.
• Annual unemployment tax report filed on Form 944 and sent to the IRS to show how much unemployment tax you own and how much that has already been paid.
• Report any worker's compensation or state unemployment paid through your business.
Unless you feel that you are fully prepared to complete these processes yourself, it might be better to hire someone to complete them for you. Hiring a professional can save time and money.
Esther N. Phahla, CPA, A Professional Corporation